As with many professions, real estate has many of its own terms. Sometimes I have to remind myself that the general public might not understand what I’m talking about. My husband is a doctor. He might be telling me something about his job, and he will use medical terminology, not layperson language. For example, he will say, febrile instead of “has a fever.” It is a word he uses everyday, but we would typically not use that term. It is the same with real estate.
I thought I would explain a few terms that real estate agents use on a daily basis that might sound a bit mysterious to you at first. I try to remember to assure my clients that there are no silly questions. If I use terminology they don’t understand, I invite them to please ask me what it means. One common acronym used by real estate agents and lenders alike is PITI. You would call it your payment, but it stands for principal, interest, taxes, and insurance. Normally your payment would be interest-only, or principal and interest if it is an amortized loan. But PITI is the full monthly obligation. If you are not having taxes and insurance collected (impounded) monthly in your payment, and most people don’t, then you should set that amount aside so that when those bills come due you are prepared. Lenders will use this full PITI amount when they calculate how much of a loan you can qualify for.
My explanation of course leads to the next question, “What is amortization?” When a loan is amortized, it means you are paying the principal (loan amount) plus interest, but you will have paid the full amount of the loan at the end of the loan term. An interest-only loan would mean you are not paying off any of the principal, just the interest that is being charged on a monthly basis. Having an interest-only loan will result in a balloon payment, which means that at the end of the loan term you will have to pay back the total amount of money you borrowed.
If you have never bought or sold a house, you may not be familiar with the terms escrow and title. Escrow is a neutral third party that handles all the money and documents necessary to conclude the sale and transfer title to the new owner. Title is the research of the ownership, loan records, and other recorded documents on a property.
In Northern California, the same company handles both escrow and title, and it’s referred to as the title company. You will work with an escrow officer who will collect documentation in order to pay off any existing seller loans, confirm that property taxes are paid in full and prorate them so that both the buyer and seller pay their correct portions, collect information on a condo or co-op to prorate homeowner’s association dues, and collect if there are any transfer fees, and so forth. The escrow officer will also prepare the grant deed, which is the official document recorded at the county recorder’s office to change the ownership from the seller
to the buyer.
The title officer will have his or her staff research all the pertinent records filed with the recorder’s office to be sure that the seller can give clean and clear title to the buyer. If the research finds that the seller has unmarketable title, and it can’t be cleared up, then the buyer can walk away from the deal without penalty. Both of these components of the transaction — escrow and title — are obviously extremely important.
I have put together a small handout about words you may need to know and on the legal aspects of real estate. If you would like a complimentary set, please contact me through the website below and let me know, and I will be happy to provide them to you.